Term deposit rates have reached their peak in last 5 years

Subject: Economy

Section: Monetary Policy

Key Points:

Term deposit rates have surged to their highest levels in the past five years as banks rush to meet strong credit demand, according to the Reserve Bank of India’s latest monthly bulletin.
Term deposit rates of more than one-year tenor are currently (as on October 6, 2023) in the 6-7.25 per cent range against 5.45-6.10 per cent range as on October 7, 2022, per RBI data.
Banks are trying to bridge the funding gap caused by faster credit vis-à-vis deposit growth. The liquidity crunch is causing banks to attract more deposits.
The structural liquidity mismatch in the banking system is reflected in the highest issuances of certificates of deposits (CDs) in September during the current financial year.
Outflows on account of tax payments and increased demand for credit ahead of the festival season have also tightened access to liquidity.
Renewed government spending and the release of the last tranche of the incremental cash reserve ratio (I-CRR) will likely ease liquidity but CD raising will likely continue.